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Saturday, December 11, 2010

This Week in Crude Oil and Natural Gas Trading

Crude oil traders end the week on a low note as China continues to attempt to reel in inflation through tightening of bank reserve requirements. These moves are seen to have less of an impact on the equity markets than raising interest rates but still have the same effect with the commodity markets which are dominated by commercial traders.

It appears the streets bias remains neutral on crude oil going into next weeks trading week with more consolidations likely. If the bulls expect to gain any momentum back Monday they will need to defend the first support level at the 10 day moving average crossing of 87.62. And more critical would be second support at the 20 day moving average crossing at 85.28.

These lower prices on the week run in the face of the federal government’s EIA reporting that crude inventories fell by 3,819 thousand barrels for the week ending December 3, 2010, well above analyst expectations. The decrease in oil stocks, the first time in three weeks, can be attributed to ramped up refinery operations.

However, at 355.9 million barrels, crude supplies are 5.9% above the year earlier level and remain above the upper limit of the average for this time of the year. The crude supply cover was down slightly from 25.4 days in the previous week to 24.7 days. In the year ago period, the supply cover was 24.2 days.

Natural gas traders also close out the week lower as we see warmer than predicted weather predictions especially in the mid west and the northeast. Stochastics and the RSI are diverging and turning neutral to bearish for natural gas. Hinting that the rally off November's low might be coming to an end. If January extends the rally off October's low, the 38% retracement level of the June-October decline crossing at 4.654 is the next upside target. Multiple closes below the 20 day moving average crossing at 4.301 are needed to confirm that a short term top has been posted. First resistance is Thursday's high crossing at 4.479. Second resistance is the 38% retracement level of the June-October decline crossing at 4.654. First support is the 20 day moving average crossing at 4.301. Second support is last Tuesday's low crossing at 4.126.

Nat gas producers seem to see a bright future ahead though as the natural gas rotary rig count, as reported December 3 by Baker Hughes Incorporated, was 961. An increase of 8 rigs from the previous week.